Panama Papers Provide Rare Glimpse Inside Famously Opaque Art MarketThe leaked documents tell the backstory of a groundbreaking Christie's auction, and the purchase of a painting one man claims was seized from his grandfather during World War II.

In 1997, Pablo Picasso's Women of Algiers (Version O) — shown here at Christie's in Hong Kong — was part of a groundbreaking art auction that sent prices soaring.

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The so-called Panama Papers have shined a light on the hundreds of thousands of shell companies used to circulate assets around the world. One of those assets is fine art, and the leaked papers show how collectors and companies have secretly bought and sold famous works by artists like Amedeo Modigliani and Pablo Picasso, among others.

One event the papers illuminate is a famous 1997 Christie's auction featuring paintings from the collection of Victor and Sally Ganz. Some of the world's most important (and richest) collectors attended, and some bid unprecedented amounts of money. The auction is said to have launched the skyrocketing prices for modern art.

Jake Bernstein is a senior reporter with the International Consortium of Investigative Journalists, which has the leaked documents. "This was a collection that Victor and Sally Ganz had accumulated over 50 years," he says, "and they had a lot of wonderful pieces — particularly a lot of Picassos — and it was a record sale."

Auctions are theatrical spectacles with a lot of scaffolding and engineering behind them.

Sarah Thornton, author of "Seven Days in the Art World"

The collection sold for more than $200 million, a terrific profit for the Ganz family — or so it seemed until the Panama Papers were released. According to the papers, the Ganz family had already sold the paintings months earlier to a subsidiary of Christie's for $168 million. That company then sold the collection to another company based on a small island in the South Pacific.

Bernstein says, "We figured out through the data exactly who was behind this offshore company and it turned out to be ... a British billionaire named Joe Lewis who was, at the time, the largest shareholder in Christie's."

The Panama Papers show that both Lewis and Christie's stood to share the profits if the auction brought in more than $168 million, which it did. The deal wasn't illegal, but it was secretive — and the auction's success resulted in an uptick in the price of art that's still in effect today.

Sarah Thornton, author of Seven Days in the Art World, says the Ganz auction occurred before what's called a "third party guarantee" — that's when an auction house will secure the sale of a work for an agreed upon, minimum price with a third party. A collector is more apt to consign a work to an auction house that guarantees it will sell for a minimum price. As for a Christie's shareholder acting as a kind of "third party" back in 1997, Thornton says it certainly explains how such high prices were commanded.

The Panama Papers may help settle an ownership claim over Amedeo Modigliani's Seated Man With a Cane, which Philippe Maestracci says was seized from his grandfather by the Nazis.
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The Panama Papers may help settle an ownership claim over Amedeo Modigliani's Seated Man With a Cane, which Philippe Maestracci says was seized from his grandfather by the Nazis.

Christie's Images/Corbis

"Back in those days he [Lewis] had multiple reasons to underwrite the Ganz collection before it came up at auction and to guarantee the family a certain sum," she says. "And it gives the whole auction house a different confidence from which to maneuver."

According to Thornton, the leaked documents confirm what art market observers have suspected for a long time: "Auctions are theatrical spectacles with a lot of scaffolding and engineering behind them."

Shell companies are part of that scaffolding. Art buyers and sellers can hide assets, evade taxes and remain anonymous, which brings us to another example from the papers — one centering on Modigliani's Seated Man With a Cane. For years, a Frenchman named Philippe Maestracci has claimed that that work belonged to his grandfather, a Jewish art dealer who fled Paris before the Nazi occupation, leaving his collection behind. The Modigliani was sold at auction in 1996, and Maestracci has been trying to get it back. He believes the buyers were the Nahmads, a billionaire art collecting family. The Nahmads claim the painting was bought by a company called the International Art Center, but according to the Panama Papers, the Nahmads pretty much control the International Art Center.

James Palmer says that helps clear things up for Maestracci, his client. Palmer's Mondex Corp. works to recover looted art. He says, "The case we have is very compelling, and so this bolsters our claim."

Meanwhile, Richard Golub, the lawyer representing both the International Art Center and the Nahmads, won't comment on who owns the center. He says Maestracci hasn't proved the painting was looted by the Nazis or that his grandfather owned it.

Still, the Panama Papers were enough for Swiss authorities to start a criminal procedure and sequester the Modigliani in Geneva. The documents might not lead to any charges, but they do provide a rare view into the opaque world of the international art trade.